Business Clinic: Should I sell farm cottages or improve them?

Whether it’s a legal, tax, insurance, management or land issue, Farmers Weekly’s Business Clinic experts can help.

Here, Henry Platts-Martin, associate partner at Carter Jonas Rural, advises on what to consider in the light of the Renters’ Reform Bill and let cottages.

See also: Business Clinic – succession prompts decisions on farmland

Q. I have two cottages let on assured shorthold tenancies, and am concerned that the Renters’ Rights Bill, and the associated costs of keeping up with maintenance, will mean we are better off selling them.

What do I need to consider before making a decision?

A. The introduction of the Renters’ Rights Bill has led many landowning businesses with residential assets to assess their options. 

This new bill is designed to give more security and stability to tenants. As a result, new responsibilities will be placed on landlords, which will incur additional costs and administration. 

The headline change is the abolition of the Section 21 no-fault eviction notice. This will take away landlords’ power to serve notice on a tenant at any time, making it harder to regain possession of the property.

Tenants’ power to challenge rent

New tenants will also have the power to challenge rents within the first six months of occupancy.

A Private Rented Sector Database will end the practice of asking for, or accepting, offers above the advertised rent, and there will be higher penalties for offences and breaches.

Some clients with a residential portfolio have decided to sell to release capital, while others have chosen to invest into their properties, as that aligns with their overall objectives. 

Carter Jonas conducted a strategic review for one private client who has a number of let properties alongside other assets on a large, diverse enterprise to determine which were core to the estate.

The strategic review identified two cottages on the edge of the estate which needed investment and had very little potential for growth in terms of rental or capital value.

The poorest-performing cottages will often be those with longer-term tenants who have not wanted improvements as they do not want to pay increased rents.

However, with energy efficiency conditions increasing, these properties are often the most in need of investment, which can drain the farm of capital.

The client needed to decide whether to invest or sell, which we advised on.

Selling would release about £850,000 that could be reinvested on better-performing assets elsewhere on the estate, improving other core residential properties or funding development/conversion projects that would add more value and generate more income.

In this case our client made the decision to sell, but this is not always the best option. Other businesses may not have additional assets they can invest the money into.

Where the cottages are located will also be important – for example, if they are close to the principal residence, a sale might affect the privacy of the farmhouse.  

Review let properties

We are advising landlords to use this bill as an opportunity to review where they stand with their let properties.

Consider whether it is financially worthwhile for the future of your business to invest in them now – could they be made more attractive to renters, earn more income and be easier to let?

Or would it be better to dispose of them and inject the cash into other assets, while the option of getting vacant possession is available?  

In our experience, every client, farm and estate is different and therefore needs to be reviewed on an individual basis.

As well as taking advice from an agent, involve your accountant in the discussion and be aware of changes to tax laws announced in the recent Budget.

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